April 30,2014,13.00 JST

Wage growth continues to lag behind inflation

Wages in Japan rose by 0.7% year on year (YoY) in March 2014. While the rate of growth is one of the highest in recent months, it still pales when compared with the rate of inflation. In March, National CPI rose by 1.6% year on year.

 A breakdown of wage data shows that it was the overtime pay and some out of season bonuses that supported the gain. Overtime-pay increased by 4.8% YoY and bonus payment by 14.8% YoY. In March 2014, overtime and bonus payment accounted for 13% of the total salary. On the other hand, base wage declined by 0.4% YoY.

According to media reports on wage negotiations, the rate of wage growth in Japan is likely to accelerate in April. But, by how much? According to the survey done by Keidanren, an association of major corporations in Japan, average YoY wage growth will accelerate from +1.9% in 2013 to +2.4% in 2014. These numbers include annual wage rise due to seniority and it is not directly comparable to national wage statistics. The Keidanren survey is also for listed companies and their employees are probably better compensated than employees in SMEs. But what we could see from the survey result is that the rise in wages in 2014 will not be much higher than in 2013. Preliminary wage statistics for April will be published on May 30, a month from today. We expect to see total wage to rise by 1 to 1.5% YoY. That would be a substantial rise, but the inflation gap between CPI and wage would then widen. Judging from the preliminary results for Tokyo area, CPI in Japan is likely to have risen by 3% YoY in April. While Japanese government and mainstream media seem somewhat optimistic on private consumption trend from April onward, we remain cautious. With wage rise continuing to lag behind inflation, how can consumers maintain their shopping habit pattern? 

For full details on March wage report, please see our indicator page here.